I didn’t grow up with a habit of charitable giving, so for a long time I didn’t give anything to charity. As time has passed I’ve gotten wealthier, and I’ve found some causes I want to support. But how much should I donate? On the one hand, I feel some obligation to use my money to help others. On the other, I also want to use it for my own enjoyment.
Being a human, my first thought is to see what other people do. But people tend not to talk much about their money or budgeting decisions. All kinds of organizations, however, are happy to tell you what to do with your money. So let’s see what their ideas are.
Religions are a very old social instution, and many of them have some requirement to donate money to the religious leadership which then distributes some of it among the needy. There are lots of rules about this, and different denominations do it differently. Roughly speaking, Judaism, Christianity, and Sikhism all have a custom of tithing 10% of earnings1. Islam has a custom of giving 2.5% of accumulated wealth, beyond personal needs. Neither Hinduism nor Buddhism have codified rules about how much should be given to charity, but they both do encourage giving.
Some modern foundations also offer guidance on how much to donate to charity. Effective Altruism recommends 10% of income. The Giving Pledge is for billionaires to pledge to give away at least 50% of their wealth during their lifetimes or in their wills. Giving What We Can recommends 3 tiers of giving. The lowest one is 1%+ of income, the medium one is 10%+ of income, and the highest one is to give away everything above a living allowance.
Most of these suggestions ignore how rich or poor the donors are, despite the obvious fact that a rich person can donate 10% of their income more easily than a poor person. Unlike all other recommendations so far, The Life You Can Save actually suggests brackets similar to how most income taxes work.
Brackets are often misunderstood, especially the concept of jumping from one bracket to the next. The thing to understand about brackets is that the listed rate applies only to the dollars earned within that bracket. For instance the above table suggests that 0% of dollar number 20,000 is donated, that 1% of dollar number 80,123 is donated, and so on. To help with this confusion every bracket table has a calculator underneath it. To get a better idea of what happens when going from one bracket to the next, try entering e.g. 40000 and 40100.
Federal tax rates provide us something else to look at. Theoretically taxes go towards improving the quality of life for everybody in the country, so they’re a form of donation that society has agreed on. While everybody has some gripe about how the government spends its money, there are plenty of people who think taxes should be higher. E.g. progressives might like to see taxes as they were in the days of FDR, while conservatives might like to see them as they were in Reagan’s days.
Everybody already pays taxes, of course, so the amount that we might want to donate based on where we think tax rates should be is the difference between the ideal tax rate and what we currently pay. On top of that, people who advocate for higher taxes will pay them, but usually only if everybody else pays them as well. It’s not as simple as saying that advocates for higher taxes should set the example by paying them as that usually misses their point. Finally, taxes are complicated. There are different kinds of income, deductions, and all kinds of rules that affect how much you actually pay. All these caveats aside, it still gives us something interesting to look at when it comes to deciding how much we may want to donate.
1939, half-way through FDR’s presidency, before the US thought about joining WWII:
And what do Americans actually do? There are a variety of numbers to find on the Internet. At the low end they say Americans donate about 1.5% of their income to charity. At the high end they say Americans donate about 5% of their income to charity. These are average numbers. All sources agree that people who donate the smallest percentage of their income are the middle class.
- Enough that it bites a little. We have to give something up. — comment from guy on the Internet